Navigating Agent Selection or Transition in U.S. Restructurings and Bankruptcy Proceedings

Navigating Agent Selection or Transition in U.S. Restructurings and Bankruptcy Proceedings

During 2020 COVID-19 continued to dominate the economic landscape and financial markets in the U.S in a way that has not been seen before. Across the country, corporations struggled, and continue to do so, because of interruption in service and supply chain that has resulted in a ripple effect across numerous industries. To combat this, corporations have taken on additional debt, through restructuring, to raise liquidity in an attempt to keep their operations running and avoid bankruptcy.

Paralyzed by long-lasting government-enforced shutdowns and significant cutbacks in consumer spending many industries such as retail, hospitality and entertainment were hard hit. Many of these businesses have been able to secure successful capital raises and bridge financing from investors to extend their liquidity and continue operations during the pandemic shutdown.

However, in our conversations with funds, legal counsel and other deal participants, many expect that those who were able to secure liquidity the first time around may be facing another wave of challenges, leaving them looking to restructure once again.

As we approach what may be another wave of restructuring and bankruptcy proceedings in Q4 2021 and into 2022, deal parties must consider carefully the agent work on their transaction to ensure a smooth and successful closing. GLAS has identified a number of characteristics that differentiate it from other agents in the restructuring space, including:

  • Taking a nimble, flexible approach: For larger institutions, the complicated nature of restructuring transactions can lead to red tape that keeps them from making quick decisions. Independent agents like GLAS have the ability to move swiftly, accommodate time sensitive requests, and arrange bespoke solutions in negotiating a deal.
  • Making the tough calls through streamlined decision-making: In some restructuring and insolvency situations, the agent must be prepared to execute on difficult decisions, including putting a company into voluntary bankruptcy. An agent that can take instructions from senior lenders and is willing to be aggressive and decisive during deals stands apart from the crowd.
  • Acting as a true partner: At the end of the day, an agent should be a partner prepared to shepherd deal parties through the full lifecycle of the restructuring process situation and quickly transition into new roles as debt facilities expire and are replaced. The ideal agent puts the deal first and is able to nimbly conduct back-office processes that have the potential to delay a transaction’s close.

Deal Spotlight: Washington Prime.

In 2021, GLAS served as agent through the lifecycle of real estate investment trust Washington Prime Group’s restructuring process. In early 2021, GLAS was appointed successor Administrative Agent for Washington Prime’s $340 million Term Loan as well as a subsequent Senior Structured Term Loan, Revolver, Term Loan, and DIP financing. In September, GLAS was appointed Administrative Agent and Collateral Agent for Washington Prime’s $1.2 billion Exit Facility.

Considerations for Agent Transfer Situations

As more and more bank lenders surrender the agency function on restructuring transactions due to their sale of positions in a deal, agent transitions are becoming increasingly common. For deal parties, being aware of the potential challenges of an agency transfer can help ensure you’re prepared to overcome them.

In navigating an agent transition, deal parties must agree on whether lenders or the company will be responsible for selecting a successor agent. Once chosen, the successor agent must be prepared to jump in feet first, accounting for pending trades and other immediate deliverables. Deal parties must also draw clear lines between the exiting agent and the successor agent, assigning responsibilities and ensuring the successor agent is experienced and prepared to organize the full set of loan documents and establish a functioning electronic system for the remainder of the transaction.

Often an afterthought amid the intense timeline of a restructuring scenario or bankruptcy proceeding, agency execution can make or break a transaction, costing deal parties time and certainty.

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